Please, Canada, hike already!

The Bank of Canada is walking a precarious tightrope as it attempts to juggle a soft landing for the domestic housing market and slowing growth in many of its key export markets. But as housing prices continue to rise on cheap money, pressure is mounting for the central bank to tighten monetary policy soon.

“The Canadian housing market is in overvalued territory by many measures, especially relative to income and rent. However, thanks to record low interest rates, affordability remains high, fueling demand for houses,” Charles St-Arnaud, an analyst at Nomura, said in a report.

In its most recent monetary policy report issued in March, the central bank noted the Canadian economy is likely to grow faster than projected in the first quarter due to underlying economic momentum. It also singled out rising household debt as the biggest domestic risk, which by St. Arnaud’s estimate is hovering at 142% of disposable income.

“We believe that that the BoC will start by hiking rates once or twice, for a total increase of between 25 basis points and 50 basis points, and then pause for some time to better evaluate the impact from the hikes on the economy, leaving time for households to adjust to the change,” said St Arnaud.

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